Over confident investors and the help they want: an overview of engagement

Misplaced belief in the understanding of investments could hurt investors planning their financial future. However, a strong desire to learn and seek advice from financial professionals presents a perfect opportunity for the investment industry to engage with consumers.

09/12/2016

Schroders Global Investor Study 2016 illustrates that investors around the globe have a firm belief in their own investing capabilities.

The study also paints a picture of robust demand for financial advice around the world, where investors still want their investment decisions ratified by professional advisers.

Overestimating investment understanding

Consumers continue to display a degree of self belief in their own investment capabilities.

This has long been a well-understood behavioural trait in investing and in other areas of life where, for example, separate studies have linked the overconfidence of road users with increased traffic accidents.

Our research shows the extent to which investors overestimate their abilities, and we highlight the significant ramifications this may have for wealth in retirement.

Consumers are increasingly entrusted with their own retirement provision and, our study suggests, there remains a significant gap between what they think they know and what they actually know.

Schroders Global Investor Study 2016 found:

Only 13% of investors globally would admit to having a less than average understanding of investments.

Over half (51%) of the investors polled globally by Schroders described themselves as having more understanding than the average investor – suggesting over confidence.

18% of women admit to having a less than average understanding of investments, compared with 11% of men.

Yet 63% of investors globally did not correctly identify what an investment management company does.

These findings, on their own, are a concern but the study also found that investors had unrealistic income expectations, which can lead to significant financial shortfalls in later life.

A cry for help

Belying that confidence in their investment abilities is the need for investors to ratify their investment decisions before making an investment with a financial professional.

Despite improving technology and the rise of “robo-advisers” - digital tools that ask individual risk and goals questions before investments are made online - it appears that investors still want the human touch.

Half (50%) of global investors say they plan to consult a financial adviser the next time they make an investment decision.

Millennials (51%) are more likely to consult a financial adviser than those aged 36 and over (49%).

Women (54%) are more likely to consult a financial adviser ahead of making an investment than men (47%)

It means that there is still an opportunity for the investment management industry to engage with a generation that is reportedly disillusioned with big business.

Willing to learn

89% of investors globally said that they wanted to learn more about investments

94% of millennials said that they wanted to improve their understanding of investments in any way

91% of women wanted to improve their investment understanding in any way, compared with 88% of men

Investors would most likely prefer to speak to a financial adviser more to improve their understanding of investments. That said, the DIY approach is also gaining in popularity.

43% of investors say they would like to speak to a financial adviser to improve their understanding of investments

42% of investors would spend more time doing their own research via independent financial websites

36% would take part in online guides and tutorials

Any increase in DIY investing is of course to be welcomed – provided consumers are building their knowledge and engaging with their finances.

Our study suggests, however, that some aspects of consumer knowledge remain relatively poor.

It is, for example, difficult to feel confident that people know and understand their investments if relatively few can identify of the role of an investment manager versus an adviser, insurance company or investment bank.

There remain a number of generations, considerably closer to retirement, with a relatively poor grasp of investment and what it can and cannot do for them.

For a lot of people, being left to manage their retirement provision by themselves could well see them living unhappily ever after.

You can test your understanding of investments with our income IQ tool, which will reveal your behavioural biases and provide useful tips to empower you to make better investment decisions.

For the full story on the Global Investor Study and interactive infographic visit www.schroders.com/gis or download the full report below.

Read the full report

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Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of Schroders plc and is a SEC registered investment adviser and registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec, and Saskatchewan providing asset management products and services to clients in the US and Canada.

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